Het Fab Industries, Ahmedabad V. The Income Tax Officer, Ward- 6(1)(1), Ahmedabad

ITA 1/AHD/2023

AI Insights

The case involves M/s. Het Fab Industries appealing against the order of the Commissioner of Income-tax (Appeals), National Faceless Appeal Centre, which upheld an addition of Rs.6,94,192 under Section 40(b) as a prima facie adjustment under Section 143(1) made by the Centralized Processing Center (CPC). The addition pertained to inadmissible interest paid to partners. The Tribunal examined the Tax Audit Report and the computation of income, noting that the amount in question was reported as both admissible and inadmissible, leading to ambiguity. The Tribunal concluded that the adjustment made under Section 143(1)(a)(iv) was not justified due to this lack of clarity and the preliminary nature of the assessment under Section 143(1).

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 299907 (ITAT-AHMEDABAD)
• Duration Of Justice: 7 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 23-08-2023
• Assessment Year: 2021-2022
• Appeal Filed On: 01-01-2023
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Principle of natural justice
• Section: 40(b); 143(1); 250; 64; 44AB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH, AHMEDABAD BEFORE MRS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA No. 1/Ahd/2023 िनधा रणवष /Assessment Year: 2021-22 M/s. Het Fab Industries, 90, Amar Industries Estate, Opp. Uttar Gujarat Sahakari Vasahat, Naroda Road, Ahmedabad-380025 PAN : AAMFH 2377 M Vs. Income Tax Officer, Ward 6(1)(1), Ahmedabad / (Appellant) / (Respondent) Assessee by : Shri S.N. Divatia & Shri Samir Vora, ARs Revenue by : Shri Santosh Kumar, Sr. DR सुनव ई क त र ख/Date of Hearing : 24.08.2023 घोषण क त र ख /Date of Pronouncement: 29.08.2023 आदेश/O R D E R The present appeal has been filed by the assessee against the order of the learned Commissioner of Income-tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as "CIT(A)" for short] dated 30.11.2022 passed under Section 250 of the Income Tax Act, 1961 [hereinafter referred to as "the Act" for short] for the Assessment Year (AY) 2021-22. 2. The grounds raised are as under:- “1.1 The order passed u/s.250 on 30.11.2022 for A.Y.2021-22 by NFAC Delhi upholding the addition of Rs 6,94,192/- u/s 40(b) as prima facie adjustment u/s 143(1) made by CPC is wholly illegal, unlawful and against the principles of natural justice. 1.2 The Ld. NFAC has grievously erred in law and or on facts in rejecting the revised tax audit report on assumption and without giving opportunity of bearing. 2.1 The Ld. NFAC has grievously erred in law and on facts in confirming addition of Rs. 6,94,192/- u/s 40(b) as prima facie adjustment u/s 143(1) made by CPC. (SMC) ITA No. 1/Ahd/2023 Het Fab Industries Vs. ITO AY : 2021-22 2 2.2 That in the facts and circumstances of the case as well as in law, the Ld. NFAC ought not to have upheld the addition of Rs 6,94,192/- u/s 40(b) as prima facie adjustment u/s 143(1) made by CPC. 2.3 The Ld. NFAC has grievously failed to appreciate that the impugned adjustment towards disallowance u/s 40(b) was illegal & unlawful as well as beyond the scope of sec 143(1) of the Act.” 3. The only issue in the present appeal pertains to adjustment made to the income of the assessee in the intimation made under Section 143(1) of the Act to the tune of Rs.6,94,190/- on account of inadmissible interest paid to partners in terms of Section 40(b) of the Act as reported in the Tax Audit Report filed by the assessee under Section 44AB of the Act. The intimation made under Section 143(1) of the Act reveals the aforesaid facts mentioning “adjustment made being on account of disallowance of expenditure indicated in the audit report but not taken into account in computing the total income returned by the assessee in terms of provisions of Section 143(1)(a)(iv) of the Act”. The particulars of the expenditure being mentioned in the intimation as “inconsistency in the amount of interest, salary, bonus, commission or remuneration paid to any partner or member inadmissible under Section 40(b)/40(ba), claimed in return of audit report amount be Rs.6,94,190/-“. 3.1 The ld. Counsel for the assessee pointed out that this alleged inadmissible expenditure was noted from clause 21(c) of the Tax Audit Report, a copy of which was placed before us at paper-book page Nos. 22- 48. Our attention was specifically drawn to clause 21(c) of the Tax Audit Report at page No.33 of the paper-book which reads as under:- “21 ....... ....... (c) Amounts debited to profit and loss account being, interest, salary, bonus, commission or remuneration inadmissible under Section 40(b)/40(ba) and computation thereof:- (SMC) ITA No. 1/Ahd/2023 Het Fab Industries Vs. ITO AY : 2021-22 3 SN Particulars Section Amount debited to P/L A/c Amount admissible Amount inadmissible Remarks 1 Interest 40(b) 5,65,692 5,65,690 2 - 2 Interest 40(b) 6,94,190 6,94,190 6,94,190 4. The ld. Counsel for the assessee pointed out that in this column the auditor had reported Rs.6,94,190/- relating to interest paid to partners in terms of Section 40(b) of the Act and had mentioned this amount as both admissible and inadmissible. He stated that based on this reporting of the impugned amount of Rs.6,90,190/- being both admissible and inadmissible, no adjustment could have been made to the income of the assessee under Section 143(1)(a)(iv) of the Act, since this reporting did not give any clarity as to whether the impugned sum was admissible or inadmissible and section 143(1)(a)(iv) permitted adjustment to the income only of those expenses which are indicated in the Audit Report as disallowable but are not taken into account in computing the total income in the return. He drew our attention to the provisions of Section 143(1)(a)(iv) of the Act as under:- “143. (1) Where a return has been made under section 139, or in response to a notice under sub-section (1) of section 142, such return shall be processed in the following manner, namely:— (a) the total income or loss shall be computed after making the following adjustments, namely:— ..... ...... ..... (iv) disallowance of expenditure 97 [or increase in income] indicated in the audit report but not taken into account in computing the total income in the return;” 5. He stated that in the absence of clarity as to whether the impugned amount was disallowable or not in the Tax Audit Report, the provisions of (SMC) ITA No. 1/Ahd/2023 Het Fab Industries Vs. ITO AY : 2021-22 4 Section 143(1)(a)(iv) of the Act could not have been made applicable for disallowing the impugned sum in the present case. 5.1 Even otherwise, he clarified that this was a punching error on the part of the person who had uploaded the Tax Audit Report mentioning the figure of Rs.6,94,190/- as both admissible and inadmissible. He contended that the mistake occurred on account of the fact that in the computation of income while computing the income liable to tax in terms of provision of the Act, the interest or remuneration paid to partners is first disallowed and added to the income of the firm and then in terms of the provisions of the Act, the quantum of such expenditure allowable is subsequently claimed as deduction. He drew our attention to the computation of income for the impugned year placed before us at page no.3 of the paper-book revealing the above facts as under:- “COMPUTATION OF INCOME Rs. Rs. PROFIT & GAINS OF BUSINESS or PROFESSION Profit before tax as per P&L account (item 53, 64 & 65 of P&L a/c) 227128 Add: Disallowables/Additions Depreciation treated separately 599440 UNPAID GST 170379 Interest paid to partners 694190 Remuneration paid to partners 565692 2029701 Less: Deductions/Expenses claimed UNPAID GST PAID 21.04.21 170379 Depreciation as per Statement 599443 Remuneration allowed to partners 565690 Interest allowed to partners 694190 (-) 2029702 6. Referring to the above, he pointed out that the amount of Rs.6,94,190/- being the interest paid to partners had first being disallowed and added to the profits of the assessee-firm, and thereafter claimed as (SMC) ITA No. 1/Ahd/2023 Het Fab Industries Vs. ITO AY : 2021-22 5 allowable. He stated, therefore, that for this reason the amount was stated both as admissible and inadmissible in the Tax Audit Report; that it was a mistake which occurred while punching the contents of the Tax Audit Report. He, therefore, pleaded that the adjustment made in the present case be deleted. 7. The learned DR, however, supported the adjustment made to the income of the assessee in the intimation made under Section 143(1) of the Act. 8. Having heard the rival submissions and perused the relevant material on record, I find merit in the contention of the ld. Counsel for the assessee. The mere fact, as pointed out to me above, which is not disputed by the ld. DR also, that this amount of interest paid to partners of Rs.6,94,190/- was shown both as admissible and inadmissible in the Tax Audit Report itself takes the issue out of the purview of Section 143(1) of the Act, more particularly Section 143(1)(a)(iv) of the Act which has been invoked in the present case. As pointed out by the ld. Counsel for the assessee, the provisions of Section 143(1)(a)(iv) of the Act permits adjustment to the income of the assessee on account of expenses which are indicated as disallowable in the Tax Audit Report, but not disallowed while computing the total income of the assessee. In the present case, the Tax Audit Report indicates the amount as both admissible and inadmissible. Therefore, the provisions of Section 143(1)(a)(iv) of the Act were not attracted. Even otherwise, the purport of intimation under Section 143(1) of the Act is to make a preliminary assessment of the income of the assessee based on the documents filed along with the return of income, permitting the adjustment to be made only on those counts which are apparently liable to be made. For example, mathematical error or amounts clearly inadmissible as (SMC) ITA No. 1/Ahd/2023 Het Fab Industries Vs. ITO AY : 2021-22 6 reported in the Tax Audit Report etc. On amounts where there is no clarity regarding their admissibility or otherwise, there was no scope for making any adjustment under Section 143(1) of the Act. For this reason, the adjustment made in the present case of Rs,6,94,190/- is liable to be deleted and is accordingly directed to be deleted. Even otherwise, I find that the assessee has given a plausible explanation for this reporting in the Tax Audit Report pointing out that since in the computation of income this impugned amount of interest paid to partners was first added to the income and then claimed as deduction; therefore, inadvertently in the Tax Audit Report it was reported as both admissible and inadmissible. In view of the above, I find merit in the grounds raised by the assessee pleading deletion of the adjustment made to the income of the assessee on account of interest paid to partners amounting to Rs.6,94,190/-. Grounds raised by the assessee are allowed. 9. In effect, the appeal of the assessee is allowed. Order pronounced in the open Court on 29/08/2023 at Ahmedabad. Sd/- (ANNAPURNA GUPTA) ACCOUNTANT MEMBER Ahmedabad; Dated 29/08/2023 **bt आदेश आदेशआदेश आदेश क琉 क琉क琉 क琉 灹ितिलिप 灹ितिलिप灹ितिलिप 灹ितिलिप अ灡ेिषत अ灡ेिषतअ灡ेिषत अ灡ेिषत/Copy of the Order forwarded to : 1. अपीलाथ牸 अपीलाथ牸अपीलाथ牸 अपीलाथ牸 / The Appellant 2. 灹瀄यथ牸 灹瀄यथ牸灹瀄यथ牸 灹瀄यथ牸 / The Respondent. 3. संबंिधत संबंिधतसंबंिधत संबंिधत आयकर आयकरआयकर आयकर आयु猴 आयु猴आयु猴 आयु猴 / Concerned CIT 4. आयकर आयकरआयकर आयकर आयु猴 आयु猴आयु猴 आयु猴)अपील अपीलअपील अपील (/ The CIT(A)- 5. िवभागीय िवभागीयिवभागीय िवभागीय 灹ितिनिध 灹ितिनिध灹ितिनिध 灹ितिनिध ,आयकर आयकरआयकर आयकर अपीलीय अपीलीयअपीलीय अपीलीय अिधकरण अिधकरणअिधकरण अिधकरण/DR,ITAT, Ahmedabad, 6. गाड榁 गाड榁गाड榁 गाड榁 फाईल फाईलफाईल फाईल /Guard file. आदेशानुसार आदेशानुसारआदेशानुसार आदेशानुसार/ BY ORDER, TRUE COPY सहायक सहायकसहायक सहायक पंजीकार पंजीकारपंजीकार पंजीकार (Asstt. Registrar) आयकर आयकरआयकर आयकर अपीलीय अपीलीयअपीलीय अपीलीय अिधकरण अिधकरणअिधकरण अिधकरण ITAT, Ahmedabad